Third Eye’s Arif Bhalwani was associated with High-level Bank Robbers.

Arif Bhalwani, CEO of Third Eye Capital, has an interesting legal history

Arif Bhalwani, CEO of Third Eye Capital, has an interesting legal history

If you need some context, here’s a quick rundown: I finally got to speak with Third Eye Capital CEO Arif N. Bhalwani, CFA. Yesterday, I worked for an hour and 39 minutes. Arif, in his telling, is a Ugandan refugee turned Bay Street success story. He certainly has the trappings of success: a mansion in Forest Hill, a family foundation that makes large donations to Upper Canada College and Branksome Hall, and even a hospital named after him (the Bhalwani Familial Cancer Clinic at the Princess Margaret Cancer Center). He is now based at Brookfield Place, Canada’s high cathedral of capitalism.

Gerry Schwartz, CFA and Bruce Flatt, CFA used to live here. Arif, on the other hand, manages a more modest $3 billion AUM. By Bay Street standards (e.g., Michele Romanow), his rise has been more methodical than meteoric. However, Arif has built perhaps the most notable private debt operation in the country over the past fifteen years. Unfortunately, OPM Wire had to begin poking around.

Our initial post on the Ninepoint Third Eye Capital Fund raised concerns about the status of several of the fund’s loans. Ninepoint (Arif’s fund partner and Bridging Finance’s former BFF) claims the blog post triggered a wave of redemptions, forcing them to freeze the $1.5 billion fund earlier this year. Since then, the fund has been in limbo, with a vote on a restructuring proposal still pending.

This story should be read in conjunction with Arif Bhalwani, the Count, and the Ponzi schemer.

Third Eye Capital

A Florida con man, a British con artist, a dead woman with drugs in her system and bruises on her body, and money stashed in offshore accounts will all be featured in this story. And somehow, our very own Arif N. Bhalwani, CFA found himself in the middle of it. OPM Wire is the place to be, Quentin Tarantino.

Third Eye Capital CEO Arif N. Bhalwani has failed if not accepting money from con artists is a principle he holds dear. Arif has a long history of litigation dating back to his twenties, when Wannabe was at the top of the charts. “If you want my future, forget my past,” the Spice Girls sang.

Arif must have liked it because it is one of his investment principles: “Look at potential, not past.” In our discussion yesterday, he also claimed that a 20-year-old lawsuit is irrelevant to our readers. We, on the other hand, believe that the past is always worth investigating. In his career, entities affiliated with Arif have received seven-figure payments from shady operators who were then convicted or sentenced for major financial fraud on multiple occasions.

The payoffs made by the Arif entities were allegedly close enough to the frauds that he became involved in the subsequent investigation and/or litigation. We can’t tell whether Arif was an unlucky bystander or a willing co-conspirator in these cases. Arif asserts the former. At the very least, these incidents call into question his ability to assess the honesty and character of his business partners.

Arif mentions co-founding Pinnacle Capital, the “Canadian unit of Pinnacle Investments, a renown (sic) early-stage and speciality venture capital firm based in California,” in his official bio. He goes on to say that his Canadian Pinnacle Capital has a “successful ten-year track record of capital investment.” Renowned means “widely acclaimed”. Have you ever heard of the company Pinnacle?

The Pinnacle group included Pinnacle Credit and Commerce International. Arif was recruited by Robert Baskin, who led the group. Arif was the President and Chief Operating Officer. As it turns out, Pinnacle was not solely interested in venture capital. Arif’s current bio does not mention it, but in the court filing we are bringing to light, he mentions that Pinnacle Credit arranged “trade credit facilities for importers and project developers” in addition to venture capital.

In 2003, Florida-based mortgage broker Jack Pentz was convicted of defrauding a $8 million private investor. Jack was sentenced to 12 years in prison for money laundering and wire fraud on six counts. The victim of Jack was a retired businessman.

In the late 1990s, Jack pretended to arrange mortgage deals, but instead spent the investor’s money on condos and plastic surgery – no Bentleys, though. Lauri Smith, a former business partner, was blamed for the deception, according to Jack. Lauri Smith had been discovered dead in a San Diego hotel room with cocaine in her system and bruises on her body from an apparent struggle.

Would you believe Pinnacle Credit & Commerce was named as one of Jack’s co-defendants in the civil case involving this very fraud?

Indeed, it was claimed that in 1998, an Irish company called Trinity Project Management received $2.5 million in swindled funds from Pentz and transferred it to the Channel Islands. It was also claimed that Trinity transferred $1.6 million to Pinnacle Credit. Arif was not a defendant in his own right, but he did respond to the lawsuit as President and COO of Pinnacle.

Pinnacle did receive $1.6 million from Trinity Project Management, according to Arif, for services rendered. This is problematic in and of itself because Trinity was led by Kenneth C. Nunn. Nunn is a fraudster, as evidenced by a separate, unrelated SEC sanction, which I’ll discuss later.

However, Arif’s Pinnacle was also chastised for this transaction. The plaintiff (or, more precisely, the lawyer for the wealthy retired businessman who was the victim) appeared determined to drag Pinnacle into the case. As a result, Arif initially attempted to avoid the complaint by claiming that the Florida court lacked jurisdiction because Pinnacle had no nexus to the state and that service of process was out of time.

In response, the plaintiff’s attorney argued that the unproven allegation that Pinnacle is “squarely implicated in the Naples-based theft and money-laundering scam” was sufficient to bring Pinnacle within the Court’s jurisdiction.

The plaintiff then says some derogatory things about Pinnacle. I only bring these allegations up if you promise to remember that they are unproven, one-sided allegations made in a legal pleading where there is always an incentive to paint opponents in the most sinister light possible. And promise to finish this story to see how the case was resolved.

With those caveats in mind, you can read some pertinent excerpts from the court filing below for yourself. However, the plaintiff alleged that Pinnacle “does not appear to be engaged in legitimate and customary business activities” and is instead engaged in “unusual and highly questionable business activities.” Plaintiff alleged an “undecipherable relationship” between Pinnacle and Trinity with a “pure gobble-de-gook” contract; and “that Pinnacle may be strategically located outside the United States does not insulate it from the long-arm jurisdiction of Florida’s courts.”

Again, these are the allegations and legal manoeuvrings of a party attempting to recover money following a fraud. It’s possible that they were barking up the wrong tree. We would caution, for example, that even if Pinnacle was under investigation by the UK’s Serious Fraud Office, as the Receiver claims, nothing came of it as far as we know.

Authorities, according to Arif, never contacted Pinnacle. I’m particularly offended by the suggestion that Pinnacle is headquartered in Canada for “strategic” reasons. Is Canada some kind of banana monarchy whose sole purpose is to facilitate financial shenanigans? That isn’t even 5% of our GDP. 2% if Vancouver is excluded.

One observation about the agreement that we would make is that Pinnacle claimed it could arrange credit facilities from a “top fifty bank in the world” at a 25 basis point spread over fed funds rates. Interested parties, such as Trinity, were required to pay a 3.2% Commitment Fee in advance.

This was at a time when AAA Corporate bonds had a 160 basis point spread over T-Bills. That’s a pretty magical deal. It’s also worth noting that Arif, at the age of 27, was a rainmaker, the driving force behind obtaining a seven-figure fee for arranging a $50 million loan with favourable terms for any borrower except the US government.

The Court rejected Arif’s jurisdictional argument and ordered him to present a substantive defence. I’d describe Pinnacle’s two-page defence as dismissive, technical and evasive in that it doesn’t engage much with the substance of the allegations. It’s what I’d call a “Prove It” defence.

There’s nothing wrong with that; if he wasn’t a knowing participant, as he claims in his defence, he could be pretty relaxed about his defence. The plaintiff always bears the burden of proof.

The main schemer was charged and convicted criminally as the civil case progressed. The record is unclear, but my understanding is that this resulted in the civil case being dismissed on the grounds that the same facts involving the same main parties should not be litigated again.

Arif says he chose to settle without admission for a sum he estimates to be between $100,000 and $200,000. I’m perplexed as to why Arif didn’t continue with his defence. Consider the ramifications if every time someone is a victim of fraud, they can harass innocent third parties into paying up. I suppose the dealership that sold David Sharpe Bentleys should brace themselves for a lawsuit soon.

Arif disagreed with the plaintiff’s statements during our conversation. His relationship with Trinity, he claims, was screened and approved by his lawyer at Borden & Elliot (now BLG). They had no way of knowing about Trinity’s trading activities or the fact that Trinity was funded by Pentz’s fraudulent scheme. Pinnacle was in the process of arranging a loan for Trinity to invest in a gold mine.

Pinnacle fulfilled their part of the bargain by bringing a credit facility from a “top fifty bank in the world” to the table. As a result, Pinnacle was entitled to their $1.6 million fee. In reality, the loan was never completed, but Arif attributes this to Trinity’s failure.

One thing is without doubt: Arif Bhalwani had associations with some bad hombres. Pinnacle and Borden & Elliot were both wrong about Trinity. Remember Kenneth C. Nunn of Trinity, the guy Arif signed that “gobble-de-gook” agreement with? Kenneth C. Nunn was named the “central figure” in a “prime bank securities fraud case” by the SEC in 2001. (unrelated to Arif Bhalwani, as far as we know).

This occurred in a complaint in which the SEC received summary judgement. Nunn was accused of soliciting US promoters and falsely claiming that his prime bank trading programme would pay 15% a month for a year. In other cases, he would claim to be earning 20% PER WEEK.

Nunn was able to raise $3.55 million, $400 thousand of which he used for personal gain. Nunn had multiple partners, one of whom received a million dollar payoff to “conduct trading”. In reality, no trading occurred. A “prime bank fraud” occurs when promoters claim to have “special, exclusive” access to major bank financial instruments. In other words, too good to be true financial proposals that would make retail private debt fund promoters blush. According to the SEC, one of the hallmarks of such frauds is the use of the term “prime” or a synonym such as “top fifty world bank.”

Correct me if I’m wrong, but prudent businesspeople would prefer that their name not appear in an agreement alongside that of a fraudster. Nonetheless, Arif’s signature appears on top of Nunn’s in that other so-called “gobbledygook” agreement.

This is the same Kenneth C. Nunn mentioned in this March 23, 2001 Orlando Sentinel article. That is, several weeks before Arif filed his affidavit in court. So Arif’s best defence when his company is accused of civil fraud is to point to a deal he made with a fraudster who had already been caught.

We have all made investment mistakes. Some of us have been taken advantage of by financial con artists. Ideally, such incidents should teach us something.

If you’re thinking to yourself, “Please tell me that Arif learned a lesson and that this is the only time an Arif entity has received a seven-figure payment from someone who turned out to be a two-bit prime bank fraudster,” I’ve got bad news for you. Another of Arif’s counter-parties was deserving of a CNBC American Greed episode – the major leagues of fraud. This post is already quite lengthy, so I’ll end it there, thank you very much. More on that later. Here’s some background on the main fraudster, a co-defendant with Pinnacle.

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